equity release to pay for care


Equity release to pay for care home fees in December 2023

A growing number of UK homeowners are turning to equity release as a means of funding care costs. This is because you have access to the worth of your house with this financial solution without having to relocate or sell. 

This article provides a comprehensive guide to understanding equity release and how it can be utilised to cover care costs.

Topics that you will find covered on this page

Understanding Equity Release

Equity release represents a collection of financial products that allow individuals to access the equity or “cash” worth held up in their property. To access this, people must typically be above 55. Most equity release providers work under the regulations set by the Equity Release Council, ensuring that customers are given fair and transparent services. 

Lifetime mortgages are a common form of equity release, helping homeowners to borrow a portion of the value of their home. The loan amount and any interest is then repaid once the homeowner either passes away or moves into long-term care.

The ‘no negative equity guarantee’, a standard provided by the Equity Release Council, ensures that customers will never be asked to repay more than the value of their home. This protection is crucial, providing security to those who choose to release equity.

The amount of money that can be released through an equity release scheme largely depends on the value of your home and your age.

Here is a short video that explains what equity release is.

Different Types of Equity Release

The two main types of equity release are lifetime mortgages and home reversion schemes.

Lifetime mortgages are the most popular type of equity release scheme as they allow you to keep ownership of the property while taking out a mortgage. You can choose to make repayments or let the interest roll-up.

A home reversion involves selling part or all of your property to a home reversion company in return for a lump sum or regular payments. Although you have the right to continue living in the property rent-free until you die, you have to agree to maintain and insure it.

A lifetime mortgage drawdown plan is another type of equity release, taking out a loan secured on your home. It functions similarly to a typical lifetime mortgage, but with the added flexibility of ‘drawing down’ the funds over time, as and when you need them. As you only start accruing interest on the money once it’s been drawn down, this can be a more cost-effective way to release equity.

Lastly, an immediate needs annuity is a type of equity release designed to provide a regular income to pay for care fees. The one-time payment made to the carer is free of taxes and therefore, potentially a good option for those who require care right away.

The Process of Equity Release

An expert financial adviser will conduct a financial assessment before you can release equity from your house. This assessment will take into account your individual circumstances, including your age, health, and property value.

Following this, you will have a discussion with an equity release adviser. They will explain the various equity release options available to you, helping you to understand the potential financial implications of each. This is a crucial stage, guaranteeing that equity release is the best option for you after doing your research.

Should you decide to proceed with equity release, you will then choose an equity release plan that suits your needs. It could take the form of recurring income, a one-time lump sum, or both. Your chosen equity release provider will then arrange for a valuation of your property which will determine how much equity you can release.

Once the paperwork is completed and the plan is set up, the funds will be released to you and spent however you choose. However, if you have an existing mortgage on your property, this will need to be paid off first.

Using Equity Release for Care Costs

Equity release can be an effective way to fund care costs. The money provided can be used to pay for these costs, whether they relate to residential care, a care provider, or other care services. The flexibility of equity release means that you can choose a lump sum payment to cover immediate care costs, or regular payments to help with ongoing expenses.

It’s worth noting that care funding can be complex, and it’s important to understand how using equity release for care costs might affect your entitlement to state benefits. Furthermore, It’s critical to think about your long-term care needs because care prices can change over time.

Equity release is not for everyone, and it’s important to consider all your options when planning for care costs. For some, downsizing to a smaller property or renting out a room in their home may be a more suitable option as they will not lose sole ownership of their home. However, equity release can be a useful source of money for people who want to stay in their own homes.

Remember that the decision to use equity release to fund care should not be taken lightly. It’s a big financial decision that can have long-term impacts. It’s important to always seek a professional before considering this option.

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All equity release and mortgage advice is provided by Boon Brokers Limited, which is authorised and regulated by the Financial Conduct Authority (FCA). The Financial Services Register number is 973757. 

If you take out a product with Boon Brokers, we will receive a fee for introducing you to them. Boon Brokers provides advice for free and without obligation.  By contacting Boon Brokers through us, the cost of any equity release product would be the same as if you had contacted them directly.  

The fee we receive is used to help keep this site operational and to produce new content.  

Think carefully before securing other debts against your home. Your home or property may be repossessed if you do not keep up repayments on your mortgage.

Benefits of Equity Release for Care

There are several benefits of using equity release to pay for care, primarily allowing you to remain in your own house. This can be particularly important for those who do not wish to move into residential care or downsize to a smaller property.

Another benefit is the flexibility it offers, allowing you to choose whether to receive the funds in a lump sum, on a regular basis, or in a combination of both. This means you can adapt the money you receive to suit your needs.

Additionally, equity release might offer a means of paying for care without having to rely on family members or state benefits. It can also offer financial independence and peace of mind, knowing that care costs can be met.

Finally, any money released is tax-free. This means you can use the full amount to pay for care, without any deductions.

Risks and Considerations in Equity Release

Equity release has a lot of advantages, but it’s crucial to be aware of any issues and other factors as well. One downside is that equity release can reduce the value of your estate, meaning there could be less money for your beneficiaries when you die.

The effect on means-tested benefits is another issue. If you release equity from your home, it might affect your entitlement to benefits such as Pension Credit and Housing Benefit. Therefore, it’s important to seek advice before making a decision.

Equity release schemes come with charges which may take the form of legal fees, valuation fees, and arrangement fees. There may also be early repayment charges if you decide to repay your mortgage early.

Finally, interest rates for equity release can be higher than traditional mortgages. The fact that the interest is typically added to the loan implies that it can quickly snowball over time.

Legal Aspects of Equity Release

Equity release is a legally binding agreement, and it’s important to understand your rights and responsibilities. For instance, if you select a home reversion plan, you will no longer be the sole owner of your home. However, you have the right to live in your home rent-free for the rest of your life.

With a lifetime mortgage, you retain ownership of your home. However, you are required to keep it in good repair and get buildings insurance.

Understanding the “no negative equity guarantee” is also crucial. This means that you will never owe more than the value of your home, even if the amount borrowed plus interest exceeds your home’s value.

If you fail to meet the terms of your equity release agreement, the provider could ask you to repay your loan or sell your property. Before agreeing to anything, make sure to carefully read the terms and conditions. Consulting an attorney for guidance is also advisable .

Here is a short video explaining the advantages and disadvantages of Lifetime Mortgages.

What is a Home Reversion Plan?

A home reversion plan involves selling part or all of your home, and receiving a tax-free lump sum (or a regular income) in return. Here are some key pieces of information.

Here is a video that explains how a home reversion scheme works.

Seeking Professional Advice on Equity Release

Before agreeing to anything, make sure you carefully read the terms and conditions and speak to a legal professional. An independent financial adviser can help you to understand the pros and cons of equity release, assessing whether it’s the right choice for your circumstances.

An equity release adviser can explain the different products available, and help you to find the one which best suits your needs.Additionally, they can assist you in figuring out the potential effects on your estate and whether you qualify for means-tested benefits.

You should also speak to a solicitor who specialises in equity release, helping you to understand the legal aspects and ensuring that you’re making an informed decision.

Avoid making a decision right away. Instead, remember to take your time, do your research, and speak to a range of professionals to ensure you’re making the right choice.

Equity Release and Inheritance Implications

One of the major considerations when thinking about equity release is the impact it could have on your estate and any inheritance you plan to leave.Because equity release lowers the value of your estate, the people who benefit from it get a smaller inheritance when you die.

However, some equity release plans come with an inheritance protection guarantee. This allows you to ring-fence a portion of the value of your property for inheritance reasons. It’s important to discuss this with your equity release adviser, depending on whether leaving an inheritance is important to you.

Additionally, it is important to openly communicate your plans with your family. For instance, they may have other suggestions or be willing to help with care costs without the need for equity release.

Remember that equity release is a big decision that could have long-term effects. It’s important to consider all your options and seek professional advice before proceeding.

A Case Study of Equity Release in Practice

Let’s consider a hypothetical case. Mary, age 70, needs more money to pay for her care. After discussing with an equity release adviser, she decides to take out a lifetime mortgage drawdown plan on her home, valued at £300,000.

Mary chooses to take out £50,000 initially to cover all of her urgent needs. However, the interest on this amount starts to accrue. Over the next few years, Mary draws down additional funds to cover her care expenses as they arise.

By using a drawdown plan, Mary only pays interest on the amount she’s actually drawn down, not on the full amount available. It helps her to keep track of her debt, reducing the amount of interest that will gradually increase.

In this scenario, equity release provided Mary with the funds she needed to cover her care costs, without having to sell her home or move into residential care. However, it’s important to keep in mind that everyone’s circumstances are unique, meaning that what works for one person might not work for another.

No negative equity guarantee

A “no negative equity guarantee” is usually included in equity release schemes, which are financial products that enable older homeowners to access the equity (the value) in their homes without selling the property.

The guarantee stipulates that if the property’s value falls below the amount owed to the equity release provider (due to interest and fees accruing over time), the homeowner or their estate will not be responsible for making up the difference. In other words, the guarantee ensures that the homeowner’s debt will never exceed the property’s value.

This protection is essential because equity release schemes can be risky, and the amount owed can rapidly increase over time. The guarantee against negative equity protects homeowners and their families from the risk of being saddled with debt exceeding the value of their home.

Local Authority and Financial Services Compensation Scheme

The local authority plays a crucial role in assessing care needs and determining eligibility for public funding. A means test is carried out to figure out the person’s income and savings. However, the use of equity release to fund care costs can potentially affect the outcome of this means test.

The Financial Services Compensation Scheme (FSCS) is another important aspect to consider when exploring equity release. It is a statutory fund of last resort, designed to compensate customers if their financial firm is unable, or likely to be unable, to pay claims against it. This means that the FSCS can step in to offer compensation if your equity release provider is unable to carry out its financial duties.

Role of Independent Advisors and Specialists

When considering equity release, it’s crucial to seek advice from an independent financial advisor or an equity release specialist. These experts can give advice which is customised to your personal situation, offering a thorough understanding of the market to help you. 

An independent financial advisor can guide you through the complexities of equity release, including the impact on your means-tested benefits, tax implications, and how it might affect your estate. Additionally, they might explain how the interest rate can affect the total amount that needs to be repaid. This is specifically important as compound interest can significantly increase the loan over time.

Equity Release Mortgage and Repayments

An equity release mortgage allows homeowners to borrow money against the value of their home, while still maintaining ownership. When the homeowner passes away or enters long-term care, the loan and any accrued interest are paid back.

Equity release mortgages come in a variety of forms and have a number of repayment alternatives. For example, a drawdown lifetime mortgage allows you to choose whether to take the cash in a one-off lump sum, or in smaller amounts as and when you need it.

Some equity release plans allow for monthly repayments, which can help to reduce the overall cost of the loan. However, a regular income, such as one from a pension, would be necessary for this.

How does a decision to release equity in a house affect my financial situation and care funding?

When you release equity in a house, it does have implications for the future financially – as discussed above. But you should also think about the future of your care and your funding methods.

Whether you release equity in a house or choose to rent or sell your home, you may find financial implications that could affect the type of care you can afford.

If your main goal in releasing equity safely is to fund care, think about whether the equity release will be able to cover the cost of your care fully, or whether it will only partially meet your needs.

If an equity release only partially funds your care for a limited period of time, you’ll need to consider how you’ll meet the additional costs.

When you release equity in a house, it can also affect the benefits you receive. Any other means test or-tested benefits may be reduced or taken away once you receive the lump sum provided by equity release. 

Non-means-tested benefits and income, such as pensions, will not be affected.

It’s also key to remember that when you release equity in a house, you unexpectedly may not fully cover the costs of your care. This often occurs when a person’s condition worsens prematurely without warning.

Before searching for care and making a funding decision you should estimate the full cost of your care, remembering to factor in the possibility of a more intensive care requirement in years to come.

Home Reversion and Tax-Free Cash Sum

One type of equity release is home reversion. It involves selling a portion or all of your home to a home reversion provider in exchange for a tax-free cash sum or regular payments. This allows you to continue living in your home rent-free for the rest of your life.

The main advantage of home reversion is that you know the exact portion of your home which has been sold, and what has been ring-fenced for later use, potentially for inheritance. Despite changes in real estate prices, the percentage you keep will never change.

Age Partnership and Family Involvement

Companies like Age Partnership can offer valuable services when considering equity release. They have a team of experienced equity release specialists, providing expert advice tailored to your needs.

It’s also important to involve family members in the decision-making process, as equity release can impact the amount of inheritance you can leave.

Remember that any misunderstandings or disagreements regarding your financial motives can be overcome by having honest and open conversations about them.

Care Home Fees and Interest Rate

Although equity release can be used to cover care home fees, it’s important that you understand the potential consequences. If you move into long-term care and your property is no longer your main residence, your equity release provider might require the loan to be repaid.

Interest rates on equity release products can be higher than traditional mortgages. In most cases, they are fixed, or if variable, they have a “cap” or limit that is set for the rest of the loan. This means understanding how the interest is calculated and applied is essential, as it can compound over time, significantly increasing the amount you owe.


What is the market value in terms of equity release?

In terms of equity release, the market value is the estimated amount for which a property should exchange on the date of valuation between a willing buyer and a willing seller. In other words, it’s how much your house is worth on the open market. The market value is a vital aspect of equity release, determining the amount of equity which you can release from your home.

This value is determined by a professional valuer, considering multiple factors. These include, the age and condition of your home, its location, and recent sale prices of similar properties in your area. Due to fluctuating housing prices, remember that the market value can change over time.

How can an equity release advisor help me?

An equity release advisor plays a crucial role in the equity release process. They offer a comprehensive knowledge of the market, providing customised advice based on your specific circumstances. They can help you understand the different types of equity release products available and the potential implications of each, including the impact on your means-tested benefits and inheritance.

Equity release is a significant financial decision that can have long-term impacts. Therefore, seeking guidance from an equity release adviser is invaluable in helping you to make an informed choice.

What is a one-off lump sum in terms of equity release?

In terms of equity release, a one-off lump sum refers to the option of receiving the entire amount of equity you wish to release from your home all at once. This can be especially useful to those who have expensive and immediate costs to cover, such as care home fees or paying off an existing mortgage.

However, as soon as interest is released, it’s important to consider it accrues on the full lump sum. This can significantly increase the amount you owe over time. Therefore, it’s crucial to seek advice, carefully considering your options before deciding to take a one-off lump sum.

Can I use pension cash to repay an equity release loan?

Whilst you can use pension cash to repay an equity release loan, it’s important to recognise the impact this might have on your retirement income. Using a significant portion of your pension cash to repay a loan could leave you with less money to cover your living costs in the future.

Before you choose to utilise your pension cash to repay a loan, it’s important to source guidance from a financial advisor.They can help you to understand the potential implications, suggesting the most suitable course of action based on your individual circumstances.

How does equity release affect means-tested benefits?

Equity release can potentially affect your eligibility for means-tested benefits. As the cash released from your home may be recognised as capital or income, your entitlement to benefits such as Pension Credit and Housing Benefit may be affected.

When considering equity release whilst also receiving means-tested benefits, it’s crucial to seek help from an equity release advisor or a benefits adviser. They can guide you in understanding how releasing equity might affect your benefits, suggesting ways to minimise any potential impact.

What is the relationship between equity release and long-term care?

Equity release can be used to fund long-term care, either in your own home or in a care home. Released money can be used to finance care services, make necessary home adaptations to meet specific care needs, or pay for care home fees.

However, if you move into long-term care and your home is no longer regarded as your main residence, your equity release provider may require the loan to be repaid. When considering equity release to fund long-term care, discussing with your provider and seeking professional advice are essential steps of the process..

Is the cash received from equity release tax-free?

Yes, the cash you receive from equity release is tax-free. This is because it’s a release of equity from your home, rather than earned income. Therefore, you are able to use the final amount of money to fund care costs, home improvements, or other expenses, without having to deduct any tax.

As mentioned earlier, although the cash lump sum is tax-free, it can also potentially impact your entitlement to means-tested benefits. Therefore, it’s advisable to seek professional advice before proceeding with equity release.

Can a family member help repay an equity release loan?

Yes, a family member can help to repay an equity release loan. Nevertheless, this may have implications for your personal financial situation, holding the potential to impact future inheritance.

This is why it’s advisable for them to seek independent financial advice before a family member decides to help repay a loan. This step can help them to understand the potential implications of their action, ensuring that they make an informed decision.

How do local authorities view equity release when assessing care needs?

When assessing care needs and determining eligibility for public funding, local authorities conduct a means test. This takes into account your income, savings, and other assets, including any equity released from your home. 

If you have released equity from your home which pushes your savings and assets over the threshold set by the local authorities, you may not be eligible for funding for care services. Therefore, sourcing professional advice before proceeding with equity release is necessary, specifically when contemplating using it to fund care costs.

use the equity release calculator to see how much money you could release from your property.
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Review of Article

This article has been reviewed by Saq Hussain, who is a pension and financial expert, with over 25 years experience of the financial services industry. Saq has regualrly featured in the UK press commentating on financial and specifically pension and retirement related issues. 

Meet the author

William Jackson

William is a leading writer for our site, specialising in both finance and health sectors.

With a keen analytical mind and an ability to break down complex topics, William delivers content that is both deeply informative and accessible. His dual expertise in finance and health allows him to provide a holistic perspective on topics, bridging the gap between numbers and wellbeing. As a trusted voice on the UK Care Guide site, William’s articles not only educate but inspire readers to make informed decisions in both their financial and health journeys. 

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